Canada Revenue Agency cuts decried by opposition parties

OTTAWA — The Conservative government is facing mounting questions over its budget arithmetic and how it will increase efforts to combat tax evasion while cutting more than $250-million from the Canada Revenue Agency over the next few years.

Opposition parties say the Tories’ math simply doesn’t add up and believe the government is trying to look busy on the issue in advance of the G8 leaders’ summit in June that will focus on international tax evasion.

Finance Minister Jim Flaherty pledged in last week’s budget the government will bolster its efforts to fight offshore tax evasion, including launching a new whistleblower line that pays rewards for tips, improving compliance programs and demanding more information on certain financial transactions.

The Harper government expects the new measures will generate more than $2-billion in additional revenue over the next five years to help balance the books.

However, the government also announced in the budget it will chop another $61-million annually from the CRA by 2015-16, bringing total cuts from the last two budgets to more than $250-million over the next few years.

“They’re trying to do everything on the cheap,” said Liberal Sen. Percy Downe, who’s leading the fight in Parliament on tax evasion. “They’re not doing the investment.”

New measures announced in the budget to combat tax evasion — such as a whistleblower tip line and requiring financial intermediaries, including banks, to report international electronic fund transfers of $10,000 or more — are a good start, but not nearly enough, he added.
“The finance minister has finally woken up to the issue. But really they’re baby steps,” Downe said.

He’s encouraging the government to invest more resources in the CRA to fight tax evasion, and to finally estimate the tax gap in Canada: the difference between what the government should be collecting in taxes and what it’s actually collecting. Several other countries such as the United States (estimated tax gap of $385-billion) and the United Kingdom (nearly $50-billion) publish a tax gap estimate.

Canadians for Tax Fairness, a domestic advocacy group, estimates international tax havens alone are costing Canada at least $7.8-billion annually, but the number could be much higher.

“The CRA believes that promoting voluntary compliance is the most cost-effective way to administer taxes in Canada

Alex Seguin, a spokesman for Revenue Minister Gail Shea, said the new cuts announced in the budget are to internal operations and will not erode the agency’s ability to combat tax evasion.

“There will be no impact on CRA’s services or CRA’s audit and enforcement capabilities,” Seguin said in an email.

Documents obtained under access to information legislation show the number of cases of “aggressive international tax planning” (avoiding payment of required taxes) — and the amount of additional taxes identified — have been going down in recent years.

In 2009-10, the government identified more than $1-billion in additional federal taxes from 1,251 cases, but that number dropped to $465-million in 2011-12 from 442 cases, show the documents, obtained by Ottawa researcher Ken Rubin.

The government cites “uncertainty in budget levels” and a focus on riskier files for the change in the numbers.

“The CRA’s fundamental approach is to encourage individuals and businesses to comply with their obligations responsibly, without government intervention,” say the documents.

“The CRA believes that promoting voluntary compliance is the most cost-effective way to administer taxes in Canada.”

Yet, the amount of tax assessed from the CRA’s voluntary disclosure program was nearly cut in half in 2011-12 ($310-million), compared to the $600-million assessed in 2010-11 and $550-million in 2009-10. The number of actual disclosures has, however, steadily increased over the last five years.

There has also been a steady decline in recent years in the number of CRA full-time employees in the international audit and aggressive tax planning programs — before the more than $250-million in cuts are implemented. However, the number of employees in each program is still more than when the Harper government first came to office.

In 2011-12, there were 422 full-time employees in the international audit program, down from the 459 full-time employees in 2008-09. For the aggressive tax planning program, the number of full-time employees fell to 468 in 2011-12 from 501 full-time workers in 2008-09.

The decreases were partly due to shifting resources to higher-paying positions, according to the documents.